Copper market deficit
Most commodities have been plagued by surplus production over the last few years. Markets are in a surplus condition when production exceeds demand. A deficit occurs when demand exceeds production. The underlying demand-supply dynamics drive commodity prices in the long term.
Brokerages turn bullish
Late last year, Goldman Sachs turned bullish on copper. Max Layton, a Goldman Sachs analyst, noted that the copper markets could be in a deficit of 180,000 metric tons in 2017. Citi is also projecting a copper market deficit for 2017.
Earlier this year, the market’s opinion was quite divided over the 2017 copper market balance. The issues faced by copper are a bit different than the issues faced by steel and aluminum.
Is a deficit looming?
Although copper has faced surplus production levels, the surplus isn’t as much as steel and aluminum. Small changes in demand or supply growth can push copper from a surplus to a deficit. Marginal supplies of steel and aluminum react almost immediately to higher prices.
Now the key question might be whether production issues at Freeport-McMoRan’s Grasberg mine and BHP Billiton’s (BHP) Escondida mine could push copper into a deficit in 2017. Let’s take a look at that in the next and final part of the series.